EU set to tackle greenwashing with Green Claims Directive

On the 22 March 2023, the European Commission published its proposal for a new 'Green Claims Directive' setting out standardised rules for the assessment, substantiation and communication of green claims.

The proposal, along with the draft directive on the right to repair also published the same day, comes as part of the latest instalment of the EU's Circular Economy Action Plan, and part of the wider EU Green Deal, which aims to transform consumer consumption patterns to reduce waste and create a sustainable economy.

The draft Green Claims Directive (Directive) aims to tackle two key misleading commercial practices related to the sustainability of products: (1) unclear or poorly substantiated green claims (i.e. 'greenwashing’); and (2) environmental labelling schemes which are not transparent or credible. To address these issues, the draft Directive proposes a minimum set of criteria that must be met before a company can make green claims to consumers, and a prohibition on sustainability labels which do not meet minimum transparency and credibility requirements to limit the proliferation of such labels.

Scope

The draft Directive would apply to all companies (including UK companies) placing products and services for sale on the EU single market, with the exception of microenterprises (i.e. with fewer than 10 employees and an annual turnover not exceeding EUR 2 million) and most financial services. It would also not apply to green claims for which EU legislation already lays down specific rules (such as green claims on organically certified products substantiated under the Organic Production and Labelling of Organic Products Regulation 2018/848).

Green claims

The draft Directive would apply to green claims made to consumers relating to the environmental impact of a company's products or business. This includes any "text, pictorial, graphic or symbolic representation… including labels, brand names, company names or product names" (see definition of 'green claims' in the Proposal for a Consumer Empowerment Directive, published March 2022).  

The draft Directive proposes the following key requirements in relation to green claims:

(1) Businesses would be required to substantiate green claims in line with a minimum set of assessment criteria, e.g. using widely recognised scientific evidence and taking into account all environmental impacts and harms across the full product life cycle (Article 3). 

(2) Businesses would be required to get all green claims verified by an independent, third-party accredited verifier and get a certificate of conformity indicating compliance with the Directive before any green claim is used (Articles 10 & 11). 

(3) Businesses would be required to make the basis for any green claim clear to consumers. This includes making information available (e.g. via weblink or QR code) about how the business has substantiated the claim including providing a copy of the certificate of conformity (Article 5).

(4) Claims relating to future environmental performance would need to include a time-bound commitment for improvements inside the company's own operations and value chains (Article 5(4)).

(5)  Businesses relying on offsets to make 'carbon neutral' or 'net zero'-type claims would need to make that clear to consumers and in any substantiating information would need to: (a) separate out any greenhouse gas emissions offsets from information on greenhouse gas emissions; (b) specify whether those offsets relate to emission reductions or removals; and (c) describe how the offsets relied on are of high integrity and accounted for correctly to reflect the claimed impact on the climate (Article 3(1)(h) and Article 5(6)(f)).

Environmental Labelling Schemes

The draft Directive also sets minimum requirements for environmental labelling schemes including requiring them to: (a) make information about ownership of the labelling scheme and the decision-making bodies and processes involved in monitoring compliance with the scheme, transparent; (b)  ensure that joining conditions are proportionate to the size and turnover of companies seeking to join; (c) ensure the requirements for the scheme have been developed by scientific experts; and (d) ensure the scheme has suitable complaints, dispute resolution and enforcement mechanisms in place to address non-compliance (Article 8). 

After the date of transposition of the Directive, no new private environmental labelling schemes would be allowed unless they can show higher environmental ambition than existing schemes, that they comply with the Directive and that they are approved by relevant national authorities (Article 8(5)).

Enforcement and Penalties

Under the draft Directive, Member States would need to designate one or more authorities to undertake regular checks of green claims and environmental labelling schemes to ensure compliance with the Directive. Where an authority detects an infringement, it would be required to carry out a full evaluation and, following any finding of infringement, the relevant business would need to take corrective action within 30 days (Article 15).  

Members States would be required to adopt penalties for infringement that are effective, proportionate and dissuasive taking into account the nature, gravity, extent and duration of the infringement. Such penalties should include fines (with a maximum amount at least 4% of annual turnover) which effectively deprive the business of the economic benefit derived from the non-compliant green claim or environmental labelling scheme. Other penalties may include confiscation of revenues gained from the infringement (e.g. from products sold with non-compliant green claims affixed) and temporary exclusion of up to 12 months from public procurement processes and from access to public funding (Article 11(3)).

Businesses could also face private enforcement action by consumer representative groups or environmental NGOs under the Representative Actions Directive, which Member States are required to implement into national law by 25 June 2023 – in fact businesses will soon be faced with an EU consumer regulatory landscape which looks much more closely aligned to the US market from a risk assessment perspective.

Wider EU Regulatory Landscape

The draft Directive also supplements other ongoing changes to EU consumer law under the Circular Economy Action Plan. In particular, it sits beside the European Commission's proposed amendments to the Unfair Commercial Practices Directive 2005/29/EC (UCPD) which seek to ban certain types of misleading green claims outright (including vague claims such as "environmentally friendly") by adding them to the list of 'blacklisted' commercial practices. This proposal is currently being considered by the European Council and, if implemented, would make it much easier for European regulators to enforce consumer law in relation to green claims.

Comparison with the UK green claims regime

In comparison with the current UK regulatory regime, which requires businesses to satisfy themselves that they have adequately substantiated a claim before marketing a product and does not explicitly require them to obtain independent verification, the draft EU Directive takes a stricter (and arguably clearer) approach. The draft Directive sets specific minimum rules for the assessment and substantiation of green claims and requires businesses to obtain independent verification from an accredited third party before making the claim. If implemented, these rules will give businesses less flexibility over assessment and substantiation of green claims, although compliance with the required minimum standards should give businesses more confidence that they could withstand a challenge or complaint about a claim further down the line. 
The draft Directive also includes a greater range of financial penalties, in particular the ability to directly fine infringing companies. However, this could soon be replicated in the UK with the government proposing to give the Competition and Markets Authority (CMA) the power to fine companies up to 10% of global annual turnover for breaches of consumer protection law under the recently published Digital Markets, Competition and Consumer Bill. 

Harmonisation of green claims rules in the EU will be helpful for businesses selling into the EU who have had to contend with an increasing patchwork of regulatory rules. Given the likely stricter rules under the EU Directive, most UK businesses will likely need to meet the EU standard unless they only sell in the UK.

Next Steps

The draft Directive will now go through the usual legislative procedure, during which there will be a period of around 18 months (up to September 2024) for the European Council and Parliament to comment and discuss the proposal including any amendments to be introduced.  Businesses should closely monitor developments and any changes to the Directive's text as it moves through this process. Businesses should also consider providing feedback to the European Commission before the feedback period closes on 18 May 2023.

Separately, businesses making green claims in respect of products or services offered in the EU should take this window of opportunity to review how their claims currently stand up against the proposed new rules and consider if any changes or qualifications are needed. In particular, businesses should examine the assessment and substantiation used to support green claims as this is one of the key focus areas of the draft Directive and for businesses in the UK, this is likely to be one of the biggest changes (and likely challenges) over and above the UK green claims regime.